August 13, Segal Consulting, a Member of The Segal Group, Inc. By: JB/hy

Transcription

1 Alameda County Employees Retirement Association Governmental Accounting Standards Board (GASB) Statement 68 Actuarial Valuation Based on December 31, 2014 Measurement Date for Employer Reporting as of June 30, 2015 This report has been prepared at the request of the Board of Retirement to assist the sponsors of the Fund in preparing their financial report for their liabilities associated with the ACERA pension plan. This valuation report may not otherwise be copied or reproduced in any form without the consent of the Board of Retirement and may only be provided to other parties in its entirety. The measurements shown in this actuarial valuation may not be applicable for other purposes. Copyright 2015 by The Segal Group, Inc. All rights reserved.

2 100 Montgomery Street Suite 500 San Francisco, CA T August 13, 2015 Board of Retirement Alameda County Employees Retirement Association th Street, Suite 1000 Oakland, CA Dear Board Members: We are pleased to submit this Governmental Accounting Standards Board (GASB) Statement No. 68 Actuarial Valuation based on a December 31, 2014 measurement date for employer reporting as of June 30, It contains various information that will need to be disclosed in order for ACERA employers to comply with GASB 68. This report was prepared in accordance with generally accepted actuarial principles and practices at the request of the Board to assist the sponsors in preparing their financial report for their liabilities associated with the ACERA pension plan. The census and financial information on which our calculations were based was provided by ACERA. That assistance is gratefully acknowledged. The measurements shown in this actuarial valuation may not be applicable for other purposes. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; and changes in plan provisions or applicable law. The actuarial calculations were completed under the supervision of Andy Yeung, ASA, MAAA, Enrolled Actuary. We are members of the American Academy of Actuaries and we meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion herein. To the best of our knowledge, the information supplied in the actuarial valuation is complete and accurate. Further, in our opinion, the assumptions as approved by the Board are reasonably related to the experience of and expectations for the Retirement Association. We look forward to reviewing this report with you and to answering any questions. Sincerely, Segal Consulting, a Member of The Segal Group, Inc. By: JB/hy Paul Angelo, FSA, MAAA, FCA, EA Senior Vice President and Actuary Andy Yeung, ASA, MAAA, FCA, EA Vice President and Associate Actuary

3 SECTION 1 SECTION 2 SECTION 2 (CONTINUED) SECTION 3 VALUATION SUMMARY GASB 68 INFORMATION ACTUARIAL ASSUMPTIONS AND METHODS AND APPENDICES Purpose... i Significant Issues in Valuation Year... i Summary of Key Valuation Results... v Important Information about Actuarial Valuations... vi EXHIBIT 1 General Information Financial Statements, Note Disclosures and Required Supplementary Information for a Cost-Sharing Pension Plan... 1 EXHIBIT 2 Net Pension Liability... 5 EXHIBIT 3 Target Asset Allocation... 6 EXHIBIT 4 Discount Rate Sensitivity... 8 EXHIBIT 8 Pension Expense EXHIBIT 9 Deferred Outflows of Resources and Deferred Inflows of Resources EXHIBIT 10 Schedule of Proportionate Share of the Net Pension Liability EXHIBIT 11 Schedule of Reconciliation of Net Pension Liability Actuarial Assumptions and Methods Appendix A Calculation of Discount Rate as of December 31, Appendix B Glossary of Terms EXHIBIT 5 Schedule of Changes in Net Pension Liability Last Two Plan Years... 9 EXHIBIT 12 Schedule of Recognition of Changes in Total Net Pension Liability EXHIBIT 6 Schedule of ACERA s Contributions Last Ten Plan Years EXHIBIT 13 Allocation of Changes in Total Net Pension Liability EXHIBIT 7 Determination of Proportionate Share... 13

4 SECTION 1: Valuation Summary for the Alameda County Employees Retirement Association Purpose This report has been prepared by Segal Consulting to present certain disclosure information required by Governmental Accounting Standards Board (GASB) Statement 68 for employer reporting as of June 30, The results used in preparing this GASB 68 report are comparable to those used in preparing the Governmental Accounting Standards Board Statement 67 report for the plan based on a reporting date and a measurement date as of December 31, This valuation is based on: The benefit provisions of the Retirement Association, as administered by the Board of Retirement; The characteristics of covered active members, inactive vested members, and retired members and beneficiaries as of November 30, 2013, provided by the Retirement Association; The assets of the Plan as of December 31, 2014, provided by the Retirement Association; Economic assumptions regarding future salary increases and investment earnings adopted by the Board for the December 31, 2014 valuation; and Other actuarial assumptions, regarding employee terminations, retirement, death, etc. adopted by the Board for the December 31, 2014 valuation. Significant Issues in Valuation Year The following key findings were the result of this actuarial valuation: The Governmental Accounting Standards Board approved two new Statements affecting the reporting of pension liabilities for accounting purposes. Statement 67 substantially replaces Statement 25 and is for plan reporting. Statement 68 substantially replaces Statement 27 and is for employer reporting. Statement 67 is effective with the 2014 calendar year for Plan reporting and Statement 68 is effective with the fiscal year ending June 30, 2015 for employer reporting. The information contained in this valuation is intended to be used (along with other information) in order to comply with Statement 68. It is important to note that the new GASB rules only redefine pension liability and expense for financial reporting purposes, and do not apply to contribution amounts for pension funding purposes. Employers and plans can still develop and adopt funding policies under current practices. When measuring pension liability, GASB uses the same actuarial cost method (Entry Age method) and the same type of discount rate (expected return on assets) as ACERA uses for funding. This means that the Total Pension Liability (TPL) measure for financial reporting shown in this report is determined on the same basis as ACERA s Actuarial i

5 SECTION 1: Valuation Summary for the Alameda County Employees Retirement Association Accrued Liability (AAL) measure for funding. We note that the same is generally true for the Normal Cost component of the annual plan cost for funding and financial reporting. The Net Pension Liability (NPL) is equal to the difference between the TPL and the Plan s Fiduciary Net Position. The Plan s Fiduciary Net Position is equal to the market value of assets and therefore, the NPL measure is very similar to an Unfunded Actuarial Accrued Liability (UAAL) calculated on a market value basis. The NPL reflects all investment gains and losses as of the measurement date. This is different from the UAAL calculated on an actuarial value of assets basis in the funding valuation that reflects investment gains and losses over 10 six-month periods. It should be noted that in determining the Plan s Fiduciary Net Position, we have only included 50% of the current deferred market gains 1 that would be available to the Pension Plan. For this report, the reporting dates for the employer are June 30, 2015 and The NPL was measured as of December 31, 2014 and 2013 and determined based upon rolling forward the Total Pension Liability from actuarial valuations as of December 31, 2013 and 2012, respectively. Plan Fiduciary Net Position (plan assets) and the TPL were valued as of the measurement dates. Consistent with the provisions of GASB 68, the assets and liabilities measured as of December 31, 2014 and 2013 are not adjusted or rolled forward to the June 30, 2015 and 2014 reporting dates, respectively. The discount rate originally used to determine the TPL and NPL as of December 31, 2014 and 2013 was 7.80%, based on the assumption that was used by the Association in the pension funding valuations as of December 31, 2013 and December 31, However, as the Retirement Board had approved a new discount rate of 7.60% (together with other new actuarial assumptions) for use in the pension funding valuation as of December 31, 2014, we have estimated the impact of this assumption change by (1) revaluing the TPL as of December 31, 2013 (before the roll forward) using the new actuarial assumptions and (2) using this revalued TPL in rolling forward the results from December 31, 2013 to December 31, The detailed calculations of the discount rate of 7.60% used in the calculation of the TPL and NPL as of December 31, 2014 can be found in Appendix A of Section 3. Various other information that is required to be disclosed can be found throughout Exhibits 1 through 13 in Section 2. As discussed in our triennial experience study report, the Actuarial Standard of Practice (ASOP) No. 4 ( Measuring Pension Obligations and Determining Pension Plan Costs or Contributions ) was recently revised and adopted in December The revised ASOP states that some plan provisions, including gain sharing provisions, may create pension obligations that are difficult to appropriately measure using traditional valuation procedures. ASOP No. 4 now mentions that for such plan provisions, the actuary should consider using alternative valuation procedures, such as stochastic modeling.to reflect the impact of variations in experience from year to year. The 50% allocation of 1 For example, 50% of the deferred market gains is equal to $121.4 million as of December 31, ii

6 SECTION 1: Valuation Summary for the Alameda County Employees Retirement Association future excess earnings to the SRBR for ACERA is an example of the gain sharing provisions referenced by ASOP No. 4. After several meetings with ACERA and its auditors, as well as with administrative staff, auditors, and consultants representing the County of Alameda, and after twice consulting with the GASB staff, it was determined that future allocations to the SRBR should be treated as an additional outflow (i.e., assets not available to fund the benefits included in the determination of the TPL) against the plan s Fiduciary Net Position in the GASB crossover test 2 (see Appendix A of Section 3). In order to quantify that outflow, we performed a stochastic model to estimate the impact of the 50% allocation of future excess earnings to the SRBR. The results of our model indicated that the 50/50 allocation of future excess earnings would have the same impact as an outflow that would average approximately 0.75% of assets over time. This approximated outflow was incorporated into our GASB crossover test, along with the additional future employer contributions that would result from those future allocations of excess earnings to the SRBR under ACERA s funding policy. The NPLs measured as of December 31, 2014 and 2013 have been determined by rolling forward the TPLs as of December 31, 2013 and December 31, 2012, respectively. In addition, we have adjusted both the TPL and the Plan Fiduciary Net Position to include $32.6 million and $26.9 million as of December 31, 2014 and December 31, 2013, respectively, that were set aside by the Retirement Board in the SRBR reserve to pay non-vested Supplemental COLA and retired member death benefits. 3 These amounts have been increased to $37.6 million and $41.4 million, respectively, by taking those actual balances in the non-opeb component of the SRBR reserve account and increasing those balances by 50% of the deferred market gains as of December 31, 2014 and December 31, 2013, reduced on a proportional basis relative to the total actual balances in the non-opeb and OPEB components of the SRBR reserve account. The NPL increased from $1,282 million as of December 31, 2013 to $1,741 million as of December 31, 2014 primarily as a result of (i) the change in actuarial assumptions effective with the December 31, 2014 valuation, and (ii) the unfavorable investment results during calendar year 2014, offset somewhat by (iii) the gains from lower than expected active salary increases during 2013 (because liabilities are rolled forward from December 31, 2013 to December 31, 2014, these gains are first reported in the December 31, 2014 results). 2 The purpose of the GASB crossover test is to determine if the full expected return (or 7.60% in this case) can be used as the discount rate to determine the TPL and the NPL. That is, if there is no crossover point where the projected benefit payments would exceed the plan s Fiduciary Net Position, then the full expected return assumption can be used. As detailed later in this report, ACERA does pass the crossover test, which means that the full 7.60% investment rate of return assumption can be used as the discount rate to determine the TPL and the resulting NPL. 3 We have excluded the liability and the assets associated with the OPEB component of the SRBR reserve account because it is our understanding that those amounts are reportable under GASB 43/45. iii

7 SECTION 1: Valuation Summary for the Alameda County Employees Retirement Association Changes in these values during the last two fiscal years ending December 31, 2013 and December 31, 2014 can be found in Exhibit 5. The General LARPD Tier 3 and Tier 4 membership class has only one employer (LARPD), so all of the NPL for General LARPD Tier 3 and Tier 4 is allocated to LARPD. The Safety membership class also has only one employer (County), so all of the NPL for Safety is allocated to the County. For General excluding LARPD Tier 3 and Tie 4, the NPL is allocated based on the actual employer contributions within the General non-larpd Tier 3 and Tier 4 membership class. The steps used for the allocation are as follows: - First calculate the ratio of the employer s contributions to the total contributions for the membership class. - This ratio is multiplied by the NPL for the membership class to determine the employer s proportionate share of the NPL for the membership class. If the employer is in several membership classes, the employer s total allocated NPR is the sum of its allocated NPL from each membership class. The proportionate share of the total plan NPL is then the ratio of the employer s total allocated NPL to the total NPL of all employers. Results shown in this report exclude any employer contributions made after the measurement date of December 31, The employer should consult with their auditors to determine the deferred outflow that should be created for these contributions. iv

8 SECTION 1: Valuation Summary for the Alameda County Employees Retirement Association Summary of Key Valuation Results Reporting Date for Employer under GASB 68 06/30/2015 (1) 06/30/2014 (2) Measurement Date for Employer under GASB 68 12/31/ /31/2013 Disclosure elements for plan year ending December 31: 1. Service cost (3) $167,119,699 $166,639, Total Pension Liability 7,653,068,752 6,975,776, Plan Fiduciary Net Position 5,912,426,212 5,693,756, Net Pension Liability 1,740,642,540 1,282,020, Pension expense 288,805,501 N/A Schedule of contributions for plan year ending December 31: 6. Actuarially determined contributions $213,254,775 $191,180, Actual contributions 213,254, ,180, Contribution deficiency (excess) (6) (7) 0 0 Demographic data for plan year ending December 31: 9. Number of retired members and beneficiaries 8,813 8, Number of vested terminated members (4) 1,995 1, Number of active members 11,025 10,877 Key assumptions as of December 31: 12. Investment rate of return 7.60% 7.80% 13. Inflation rate 3.25% 3.50% 14. Projected salary increases (5) General: 4.15% to 7.45% and Safety: 4.45% to 10.45% (1) The reporting date and measurement date for the plan are December 31, (2) The reporting date and measurement date for the plan are December 31, General: 4.60% to 7.20% and Safety: 4.70% to 10.20% (3) Service cost is always based on the previous year s assumptions, meaning the 2014 service cost and 2013 service cost are based on those assumptions shown as of December 31, (4) Includes members who left their contributions on deposit even though they have less than five years of service. (5) Includes inflation at 3.25% and 3.50% as of December 31, 2014 and December 31, 2013, respectively, plus real across-the-board salary increases of 0.50% plus merit and promotional increases. v

9 SECTION 1: Valuation Summary for the Alameda County Employees Retirement Association Important Information about Actuarial Valuations In order to prepare an actuarial valuation, Segal Consulting ( Segal ) relies on a number of input items. These include: Plan of benefits Plan provisions define the rules that will be used to determine benefit payments, and those rules, or the interpretation of them, may change over time. It is important to keep Segal informed with respect to plan provisions and administrative procedures, and to review the plan description in this report (as well as the plan summary included in our funding valuation report) to confirm that Segal has correctly interpreted the plan of benefits. Participant data An actuarial valuation for a plan is based on data provided to the actuary by ACERA. Segal does not audit such data for completeness or accuracy, other than reviewing it for obvious inconsistencies compared to prior data and other information that appears unreasonable. It is important for Segal to receive the best possible data and to be informed about any known incomplete or inaccurate data. Assets This valuation is based on the market value of assets as of the valuation date, as provided by ACERA. Actuarial assumptions In preparing an actuarial valuation, Segal projects the benefits to be paid to existing plan participants for the rest of their lives and the lives of their beneficiaries. This projection requires actuarial assumptions as to the probability of death, disability, withdrawal, and retirement of each participant for each year. In addition, the benefits projected to be paid for each of those events in each future year reflect actuarial assumptions as to salary increases and cost-of-living adjustments. The projected benefits are then discounted to a present value, based on the assumed rate of return that is expected to be achieved on the plan s assets. There is a reasonable range for each assumption used in the projection and the results may vary materially based on which assumptions are selected. It is important for any user of an actuarial valuation to understand this concept. Actuarial assumptions are periodically reviewed to ensure that future valuations reflect emerging plan experience. While future changes in actuarial assumptions may have a significant impact on the reported results, that does not mean that the previous assumptions were unreasonable. The user of Segal s actuarial valuation (or other actuarial calculations) should keep the following in mind: The valuation is prepared at the request of the Board to assist the sponsors of the Fund in preparing items related to the pension plan in their financial reports. Segal is not responsible for the use or misuse of its report, particularly by any other party. An actuarial valuation is a measurement of the plan s assets and liabilities at a specific date. Accordingly, except where otherwise noted, Segal did not perform an analysis of the potential range of future financial measures. The actual long-term cost of the plan will be determined by the actual benefits and expenses paid and the actual investment experience of the plan. vi

10 SECTION 1: Valuation Summary for the Alameda County Employees Retirement Association If the ACERA is aware of any event or trend that was not considered in this valuation that may materially change the results of the valuation, Segal should be advised, so that we can evaluate it. Segal does not provide investment, legal, accounting, or tax advice. Segal s valuation is based on our understanding of applicable guidance in these areas and of the plan s provisions, but they may be subject to alternative interpretations. The Board should look to their other advisors for expertise in these areas. As Segal Consulting has no discretionary authority with respect to the management or assets of ACERA, it is not a fiduciary in its capacity as actuaries and consultants with respect to ACERA. vii

11 EXHIBIT 1 General Information Financial Statements, Note Disclosures and Required Supplementary Information for a Cost- Sharing Pension Plan Plan Description Plan administration. The Alameda County Employees Retirement Association (ACERA) was established by the Alameda County Board of Supervisors in ACERA is administered by the Board of Retirement and governed by the County Employees Retirement Law of 1937 (California Government Code Section et. seq.). ACERA is a cost-sharing, multiple employer, defined benefit, public employee retirement system whose main function is to provide service retirement, disability, death, and survivor benefits to the General and Safety members employed by the County of Alameda. ACERA also provides retirement benefits to the employee members of First 5 Alameda County, Housing Authority of the County of Alameda, Alameda Health System, Livermore Area Recreation and Park District (LARPD), Superior Court of California County of Alameda, and Alameda County Office of Education. The management of ACERA is vested with the ACERA Board of Retirement. The Board consists of nine members and two alternates. The County Treasurer is a member of the Board of Retirement by law and is elected by the general public. Four members are appointed by the Board of Supervisors, one of whom may be a County Supervisor. Two active members are elected by the General members; one active member and one alternate are elected by the Safety members; one retired member and one alternate are elected by the retired members. All members of the Board of Retirement serve terms of three years except for the County Treasurer whose term runs concurrent with his term as County Treasurer. Plan membership. At December 31, 2014, pension plan membership consisted of the following: Retired members or beneficiaries currently receiving benefits 8,813 Vested terminated members entitled to, but not yet receiving benefits (1) 1,995 Active members 11,025 Total 21,833 (1) Includes terminated members due a refund of member contributions. Benefits provided. ACERA provides service retirement, disability, death, and survivor benefits to eligible employees. The first date of ACERA membership varies by employer, as follows: Alameda County, Alameda Health System and Alameda Superior Court Employees: Membership for these employees is effective on the first day of the second pay period following the employee s hire date in an ACERA-covered position. This is the date of entry into ACERA membership. As of the date of entry, payroll deductions for retirement contributions begin and service credit for each hour worked is earned. During the short period between the beginning of employment and the 1

12 ACERA plan date of entry, the employee does not pay contributions or earn service credit. A member may purchase this service credit (referred to as days prior to entry ) any time before retirement without changing the membership, but date of entry does not change. Housing Authority and Livermore Area Recreation and Park District Employees: Membership for these employees is effective on the first day of employee s hire in an ACERA covered position. The first date of employment is the date of entry into ACERA membership. As of this date of entry, payroll deductions for retirement contributions begin and service credit for each hour work is earned. First 5 Employees: Membership for these employees is effective on the first day of the second pay period following the employee s hire date. Office of Education Employees: This is a closed plan with one employee (i.e., there is no new ACERA membership). Membership for this employee is the first day of the second month following employee s hire date. There are separate retirement benefits for General and Safety members. Safety membership is extended to those involved in active law enforcement, deferred firefighters, or positions that have been designated as Safety by the Board of Retirement (e.g. Juvenile Hall Group Counselor, Probation Officer, etc.). All other employees are classified as General members. Any new member who becomes a member on or after January 1, 2013 is placed into Tier 4 and is subject to the provisions of California Public Employees Pension Reform Act of 2013 (PEPRA), California Government Code 7522 et seq. and Assembly Bill (AB) 197. General members enrolled in Tiers 1, 2, or 3 are eligible to retire once they attain the age of 70 regardless of service or at age 50 with five or more years of retirement service credit and a total of 10 years of qualifying membership. A non-tier 4 General member with 30 years of service is eligible to retire regardless of age. General members enrolled in Tier 4 are eligible to retire once they have attained the age of 52 and have acquired five years of retirement service credit, or at age 70 regardless of service. Safety members enrolled in Tiers 1, 2, 2C, or 2D are eligible to retire once they attain the age of 70 regardless of service or at age 50 with five or more years of retirement service credit and a total of 10 years of qualifying membership. A non-tier 4 Safety member with 20 years of service is eligible to retire regardless of age. Safety members enrolled in Tier 4 are eligible to retire once they have attained the age of 50 and have acquired five years of retirement service credit, or at age 70 regardless of service. 2

13 The retirement benefit the member will receive is based upon age at retirement, final average compensation, years of retirement service credit and retirement plan and tier. The tiers and their basic provisions are listed below: Tier Name Service Retirement Governing Code Section Effective Date Basic Provisions General Tier Various 2.0% at 57; maximum 3% COLA General Tier June 30, 1983* 2.0% at 61; maximum 2% COLA General Tier October 1, % at 55; maximum 3% COLA General Tier (a) January 1, % at 67; maximum 2% COLA Safety Tier Various 3.0% at 50; maximum 3% COLA Safety Tier June 30, 1983 Safety Tier 2C October 17, 2010 Safety Tier 2D October 17, 2010 Safety Tier (d) January 1, 2013 * For Housing Authority members, the effective date is September 30, % at 50; maximum 2% COLA 2.6% at 55; maximum 2% COLA 3.0% at 55; maximum 2% COLA 2.7% at 57; maximum 2% COLA Final Average Salary Period Highest 1-year Highest 3-years Highest 1-year Highest 3-years Highest 1-year Highest 3-years Highest 3-years Highest 3-years Highest 3-years Plan Sponsors All All except LARPD LARPD All County County County County County For members enrolled in Tiers 1, 2, 2C, 2D, or 3, the maximum monthly retirement allowance is 100% of final compensation. There is no maximum for members enrolled in Tier 4. The member may elect an unmodified retirement allowance, or choose an optional retirement allowance. The unmodified retirement allowance provides the highest monthly benefit and a 60% continuance to an eligible surviving spouse or domestic partner. An eligible surviving spouse or domestic partner is one married to or registered with the member one year prior to the 3

14 effective retirement date. There are four optional retirement allowances the member may choose. Each of the optional retirement allowances requires a reduction in the unmodified retirement allowance in order to allow the member the ability to provide certain benefits to a surviving spouse, domestic partner, or named beneficiary having an insurable interest in the life of the member. ACERA provides an annual cost-of-living benefit to all retirees. The cost-of-living adjustment, based upon the Consumer Price Index for the San Francisco-Oakland-San Jose Area (with as the base period), is capped at 3.0% for General Tiers 1 and 3 and Safety Tier 1, and at 2.0% for General Tiers 2 and 4 and Safety Tiers 2, 2C, 2D, and 4. The County of Alameda and the other participating agencies contribute to the retirement plan based upon actuarially determined contribution rates adopted by the Board of Retirement. Employer contribution rates are adopted annually based upon recommendations received from ACERA s actuary after the completion of the annual actuarial valuation. The average employer contribution rate as of December 31, 2014 for 2014 (based on the December 31, 2012 and December 31, 2013 valuations for the second half of 2013/2014 and the first half of 2014/2015, respectively) was 24.04% of compensation. Members are required to make contributions to ACERA regardless of the retirement plan or tier in which they are included. The average member contribution rate as of December 31, 2014 for 2014 (based on the December 31, 2012 and December 31, 2013 valuations for the second half of 2013/2014 and the first half of 2014/2015, respectively) was 8.99% of compensation. 4

15 EXHIBIT 2 Net Pension Liability Reporting Date for Employer under GASB 68 June 30, 2015 June 30, 2014 Measurement Date for Employer under GASB 68 December 31, 2014 December 31, 2013 The components of the Net Pension Liability are as follows: Total Pension Liability $7,653,068,752 $6,975,776,650 Plan Fiduciary Net Position 5,912,426,212 5,693,756,107 Net Pension Liability $1,740,642,540 $1,282,020,543 Plan Fiduciary Net Position as a percentage of the Total Pension Liability 77.26% 81.62% The Net Pension Liability was measured as of December 31, 2014 and Plan Fiduciary Net Position (plan assets) was valued as of the measurement date while the Total Pension Liability (TPL) was determined based upon rolling forward the Total Pension Liability from actuarial valuations as of December 31, 2013 and 2012, respectively. Plan provisions. The plan provisions used in the measurement of the NPL are the same as those used in ACERA s actuarial valuation as of December 31, Actuarial assumptions for the December 31, 2014 measurement date. The TPL as of December 31, 2014 was measured by an actuarial valuation as of December 31, The actuarial assumptions used to develop the December 31, 2014 TPL are the same as the new assumptions adopted by the Retirement Board for use in the December 31, 2014 funding valuation. The assumptions used in the measurement of the TPL are outlined in Section 3 of this report. In particular, the following actuarial assumptions were applied to all periods included in the measurement: Inflation 3.25% Salary increases Investment rate of return General: 4.15% to 7.45% and Safety: 4.45% to 10.45%, vary by service, including inflation 7.60%, net of pension plan investment expense, including inflation Other assumptions See analysis of actuarial experience during the period December 1, 2010 through November 30,

16 EXHIBIT 3 Target Asset Allocation The long-term expected rate of return on pension plan investments for funding valuation purposes was determined using a building-block method in which expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. This information is combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage, adding expected inflation, and subtracting expected investment expenses and a risk margin. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before deducting investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized in the following table: Asset Class Target Allocation Long-Term (Arithmetic) Expected Real Rate of Return Domestic Large Cap Equity 25.60% 5.91% Domestic Small Cap Equity 6.40% 6.47% Developed International Equity 20.25% 6.88% Emerging Market Equity 6.75% 8.24% U.S. Core Fixed Income 11.25% 0.73% High Yield Bonds 1.50% 2.67% International Bonds 2.25% 0.42% Real Estate 6.00% 4.95% Commodities 2.00% 4.25% Absolute Return (Hedge Fund) 7.50% 3.17% Real Return 3.00% 0.70% Private Equity 7.50% 11.94% Total % Discount rate: The discount rate used to measure the Total Pension Liability was 7.60% as of December 31, 2014 and 7.80% as of December 31, Our understanding is that Article 5.5 of the Statute, which authorizes the allocation of 50% of excess earnings to the SRBR, does not allow for the use of a different investment return assumption for funding than is used for interest crediting. In order to reflect the provisions of Article 5.5, we have treated future allocations to the SRBR as an 6

17 additional outflow against the plan s Fiduciary Net Position in the GASB crossover test, as mentioned earlier in Section 1. We understand this to be the GASB s preferred method in reflecting gain sharing plan provisions, such as those allowed by Article 5.5. We have estimated that the additional outflow would average approximately 0.75% of assets over time, based on the results of our stochastic modeling of the 50% allocation of future excess earnings to the SRBR. The projection of cash flows used to determine the discount rate assumes plan member contributions will be made at the current member contribution rates, and that employer contributions will be made at rates equal to the actuarially determined contribution rates 4 plus additional future contributions that would follow from the future allocation of excess earnings to the SRBR. Projected employer contributions that are intended to fund the service costs for future plan members and their beneficiaries, as well as projected contributions from future plan members, are not included. Based on those assumptions, the pension plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments for current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability as of both December 31, 2014 and December 31, For this purpose, only employer contributions that are intended to fund benefits of current plan members and their beneficiaries are included. 7

18 EXHIBIT 4 Discount Rate Sensitivity Sensitivity of the Net Pension Liability to changes in the discount rate. The following presents the Net Pension Liability of ACERA as of December 31, 2014, which is allocated to all employers, calculated using the discount rate of 7.60%, as well as what ACERA s Net Pension Liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.60%) or 1-percentage-point higher (8.60%) than the current rate. The determination of the NPL by employer is shown later in Exhibit 7. Employer 1% Decrease (6.60%) Net Pension Liability Current Discount Rate (7.60%) 1% Increase (8.60%) Alameda County $2,062,347,344 $1,362,794,384 $780,428,943 Health System 479,015, ,060, ,657,432 Superior Court 105,498,365 64,323,516 29,877,212 First 5 9,306,550 5,674,306 2,635,621 Housing Authority 12,227,654 7,455,335 3,462,880 LARPD 13,022,011 8,203,447 4,223,188 Office of Education 214, ,731 60,722 Total for all Employers $2,681,631,505 $1,740,642,540 $956,345,998 8

19 EXHIBIT 5 Schedule of Changes in Net Pension Liability Last Two Plan Years Reporting Date for Employer under GASB 68 June 30, 2015 June 30, 2014 Measurement Date for Employer under GASB 68 December 31, 2014 December 31, 2013 Total Pension Liability 1. Service cost $167,119,699 $166,639, Interest 542,377, ,202, Change of benefit terms Differences between expected and actual experience -85,378,608-61,362, Changes of assumptions 431,863, Benefit payments, including refunds of member contributions -378,689, ,937, Net change in Total Pension Liability $677,292,102 $267,541, Total Pension Liability beginning 6,975,776,650 6,708,235, Total Pension Liability ending $7,653,068,752 $6,975,776,650 Plan Fiduciary Net Position 10. Contributions employer $213,254,775 $191,180, Contributions employee 79,714,187 76,230, Net investment income 318,245, ,913,880 (1) 13. Benefit payments, including refunds of member contributions -378,689, ,937, Administrative expense -13,854,830-13,633, Other Net change in Plan Fiduciary Net Position $218,670,105 $630,752, Plan Fiduciary Net Position (2) beginning 5,693,756,107 5,063,003, Plan Fiduciary Net Position (2) ending $5,912,426,212 $5,693,756, Net Pension Liability ending (9) (18) $1,740,642,540 $1,282,020, Plan Fiduciary Net Position as a percentage of the Total Pension Liability 77.26% 81.62% 21. Covered-employee payroll (3) $886,924,862 $853,349, Plan Net Pension Liability as percentage of covered-employee payroll % % (1) (2) (3) Approximately $37.9 million due to ACERA s reclassification of SRBR assets from non-opeb to OPEB, as of December 31, Market value of assets, less OPEB-related SRBR assets (OPEB-related SRBR assets include 50% of the deferred market gains at the end of the year, reduced on a proportional basis relative to the total actual balances in the OPEB and non-opeb components of the SRBR reserve account). Covered employee payroll shown includes only Compensation Earnable and Pensionable Compensation that would go into the determination of retirement benefits. Notes to Schedule: Benefit changes: All members with membership dates on or after January 1, 2013 enter the new tiers created by the California Public Employees Pension Reform Act of 2013 (PEPRA). 9

20 EXHIBIT 6 Schedule of ACERA s Contributions Last Ten Plan Years Plan Year Ended December 31 Actuarially Determined Contributions (1) Contributions in Relation to the Actuarially Determined Contributions Contribution Deficiency (Excess) Covered-Employee Payroll (2) Contributions as a Percentage of Covered-Employee Payroll 2005 $100,801,162 $100,801,162 $0 $670,000, % ,095, ,095, ,162, % ,039, ,039, ,852, % ,660, ,660, ,712, % ,198, ,198, ,141, % ,543, ,543, ,617, % ,879, ,879, ,482, % ,648, ,648, ,932, % ,180, ,180, ,349, % ,254, ,254, ,924, % (1) Prior to plan year ending December 31, 2014, this amount was reported as the Annual Required Contribution (ARC). (2) Covered-employee payroll shown includes only Compensation Earnable and Pensionable Compensation that would go into the determination of retirement benefits. 10

21 Notes to Exhibit 6 Methods and assumptions used to establish actuarially determined contribution (ADC) rates: Valuation date Actuarial cost method Amortization method Remaining amortization period Asset valuation method Actuarially determined contribution rates for the first six months of calendar year 2014 (or the second half of fiscal year ) are calculated based on the December 31, 2012 valuation. Actuarially determined contribution rates for the last six months of calendar year 2014 (or the first half of fiscal year ) are calculated based on the December 31, 2013 valuation. Entry Age Actuarial Cost Method Level percent of payroll (3.75% payroll growth assumed) Prior to January 1, 2012, the total UAAL was amortized on a 30-year decreasing period, with 21 years remaining as of December 31, 2011 (with 20 years remaining as of December 31, 2012 and 19 years remaining as of December 31, 2013). On or after January 1, 2012, any new UAAL resulting from plan amendments are amortized over separate decreasing 15-year periods; early retirement incentive programs (ERIPs) are amortized over separate decreasing 5-year periods; assumption and method changes are amortized over separate decreasing 20-year periods; and experience gains/losses are also amortized over separate decreasing 20-year periods. The actuarial value of assets is determined by recognizing any difference between the actual and the expected market return over 10 six-month interest crediting periods. The actuarial value of assets is further adjusted, if necessary, to be within 40% of the market value of assets. The valuation value of assets is the actuarial value of assets reduced by the value of the non-valuation reserves. 11

22 Notes to Exhibit 6 (continued) Actuarial assumptions: Investment rate of return December 31, 2012 Valuation (for first six months of 2014 ADC) 7.80%, net of pension plan investment expense, including inflation December 31, 2013 Valuation (for last six months of 2014 ADC) 7.80%, net of pension plan investment expense, including inflation Inflation rate 3.50% 3.50% Real across-the-board salary increases 0.50% 0.50% Projected salary increases General: 4.60% to 7.20% and Safety: 4.70% to 10.20%, vary by service, including inflation General: 4.60% to 7.20% and Safety: 4.70% to 10.20%, vary by service, including inflation Cost of living adjustments 3.00% of retirement income for General Tiers 1 and 3, and Safety Tier 1; 2.00% for General Tiers 2 and 4, and Safety Tiers 2, 2C, 2D, and 4 Other assumptions Same as those used in the December 31, 2012 funding actuarial valuation Other information: 3.00% of retirement income for General Tiers 1 and 3, and Safety Tier 1; 2.00% for General Tiers 2 and 4, and Safety Tiers 2, 2C, 2D, and 4 Same as those used in the December 31, 2013 funding actuarial valuation All members with membership dates on or after January 1, 2013 enter Tier 4, created by the California Public Employees Pension Reform Act of 2013 (PEPRA). 12

23 EXHIBIT 7 Determination of Proportionate Share Employer (All, Excluding LARPD Tier 3 and Tier 4 ) General Contributions Actual Employer Contributions by Employer and Membership Class January 1, 2013 to December 31, 2013 General Percentage (1) (LARPD Tier 3 and Tier 4 Only) General Contributions General Percentage (All General Members Combined) General Contributions General Percentage Alameda County $81,707, % $ % $81,707, % Health System 35,748, % % 35,748, % Superior Court 8,197, % % 8,197, % First 5 740, % % 740, % Housing Authority 974, % % 974, % LARPD 167, % 910, % 1,078, % Office of Education 16, % % 16, % Total for all Employers $127,553, % $910, % $128,464, % Employer Actual Employer Contributions by Employer and Membership Class January 1, 2013 to December 31, 2013 Safety Contributions Safety Percentage Total Contributions Total Percentage Alameda County $62,715, % $144,422, % Health System % 35,748, % Superior Court % 8,197, % First % 740, % Housing Authority % 974, % LARPD % 1,078, % Office of Education % 16, % Total for all Employers $62,715, % $191,180, % (1) The unrounded percentages are used in the allocation of the NPL amongst the General employers. 13

24 EXHIBIT 7 (continued) Determination of Proportionate Share Employer (All, Excluding LARPD Tier 3 and Tier 4 ) General NPL General Percentage Allocation of December 31, 2013 Net Pension Liability (LARPD Tier 3 and Tier 4 Only) General NPL General Percentage (All General Members Combined) General NPL General Percentage Alameda County $454,149, % $ % $454,149, % Health System 198,700, % % 198,700, % Superior Court 45,564, % % 45,564, % First 5 4,116, % % 4,116, % Housing Authority 5,418, % % 5,418, % LARPD 930, % 5,893, % 6,824, % Office of Education 93, % % 93, % Total for all Employers $708,973, % $5,893, % $714,867, % Employer Allocation of December 31, 2013 Net Pension Liability Safety NPL Safety Percentage Total NPL Total Percentage Alameda County $567,153, % $1,021,302, % Health System % 198,700, % Superior Court % 45,564, % First % 4,116, % Housing Authority % 5,418, % LARPD % 6,824, % Office of Education % 93, % Total for all Employers $567,153, % $1,282,020, % 14

25 EXHIBIT 7 (continued) Determination of Proportionate Share Notes: Based on the January 1, 2013 through December 31, 2013 employer contributions as provided by ACERA. The Net Pension Liability (NPL) for each membership class is the Total Pension Liability (TPL) minus the Plan Fiduciary Net Position (plan assets). The Total Pension Liabilty for each membership class is obtained from internal valuation results. The Plan Fiduciary Net Position for each membership class was estimated by adjusting the valuation value of assets for each membership class by the ratio of the total ACERA Plan Fiduciary Net Position to total ACERA valuation value of assets. The General LARPD Tier 3 and Tier 4 membership class has only one employer (LARPD), so all of the NPL for General LARPD Tier 3 and Tier 4 is allocated to LARPD. The Safety membership class also has only one employer (County), so all of the NPL for Safety is allocated to the County. For General excluding LARPD Tier 3 and Tier 4, the NPL is allocated based on the actual employer contributions within the General non-larpd Tier 3 and Tier 4 membership class. The steps used for the allocation are as follows: - First calculate the ratio of the employer's contributions to the total contributions for the membership class. - This ratio is multiplied by the NPL for the membership class to determine the employer's proportionate share of the NPL for the membership class. If the employer is in several membership classes, the employer's total allocated NPL is the sum of its allocated NPL from each membership class. The proportionate share of the total plan NPL is then the ratio of the employer's total allocated NPL to the total NPL of all employers. 15

26 EXHIBIT 7 (continued) Determination of Proportionate Share Employer (All, Excluding LARPD Tier 3 and Tier 4 ) General Contributions Actual Employer Contributions by Employer and Membership Class January 1, 2014 to December 31, 2014 General Percentage (1) (LARPD Tier 3 and Tier 4 Only) General Contributions General Percentage (All General Members Combined) General Contributions General Percentage Alameda County $91,309, % $ % $91,309, % Health System 39,346, % % 39,346, % Superior Court 8,665, % % 8,665, % First 5 764, % % 764, % Housing Authority 1,004, % % 1,004, % LARPD 185, % 960, % 1,145, % Office of Education 17, % % 17, % Total for all Employers $141,293, % $960, % $142,253, % Employer Actual Employer Contributions by Employer and Membership Class January 1, 2014 to December 31, 2014 Safety Contributions Safety Percentage Total Contributions Total Percentage Alameda County $71,000, % $162,310, % Health System % 39,346, % Superior Court % 8,665, % First % 764, % Housing Authority % 1,004, % LARPD % 1,145, % Office of Education % 17, % Total for all Employers $71,000, % $213,254, % (1) The unrounded percentages are used in the allocation of the NPL amongst the General employers. 16

27 EXHIBIT 7 (continued) Determination of Proportionate Share Employer (All, Excluding LARPD Tier 3 and Tier 4 ) General NPL General Percentage Allocation of December 31, 2014 Net Pension Liability (LARPD Tier 3 and Tier 4 Only) General NPL General Percentage (All General Members Combined) General NPL General Percentage Alameda County $677,763, % $ % $677,763, % Health System 292,060, % % 292,060, % Superior Court 64,323, % % 64,323, % First 5 5,674, % % 5,674, % Housing Authority 7,455, % % 7,455, % LARPD 1,374, % 6,828, % 8,203, % Office of Education 130, % % 130, % Total for all Employers $1,048,782, % $6,828, % $1,055,611, % Employer Safety NPL Allocation of December 31, 2014 Net Pension Liability Safety Percentage Total NPL Total Percentage Alameda County $685,030, % $1,362,794, % Health System % 292,060, % Superior Court % 64,323, % First % 5,674, % Housing Authority % 7,455, % LARPD % 8,203, % Office of Education % 130, % Total for all Employers $685,030, % $1,740,642, % 17